Supply Side briefs: Nestle divestiture, ConAgra private label woes
by January 5, 2015 9:48 am 198 views
• Nestle Waters divests ice cream business in Mexico
Wal-Mart supplier Nestle Waters recently announced the $68 million sale of its ice cream business in Mexico to Grupo Herdez. The deal includes the Nestle, Mega, PelaPop and eXreme brands, two manufacturing facilities in Lagos de Moreno and Jalisco, Mexico and the business unit management team.
“This acquisition will deliver significant synergies with our Nutrisa business and increase our sales and leadership position in the growing and high-potential ice cream category,” said Héctor Hernández-Pons Torres, chairman and CEO. “We look forward to welcoming the Nestle ice cream team and are excited about this unique opportunity to serve the youth segment, and strengthen our direct mom and pop retail channel in Mexico.”
Grupo Herdez said the addition of the Nestle business will allow it to increase its scale and capabilities in the frozen business segment and doubles the size of its ice cream business.
The transaction will be funded through existing lines of credit and cash on hand. It is expected to close in the first half of 2015, subject to regulatory approval.
• ConAgra discusses private label woes
The $6.8 billion purchase of Ralcorp Holdings by ConAgra Foods in 2013 has not yet produced the desired results in the food company’s private label business. The private brands segment suffered a 6% volume decline and operating loss of $202 million during its recent quarter. The losses included charges of $247 million comprising a write down of goodwill and other intangible assets.
CEO Gary Rodkin told analysts in the Dec. 18 call that the private brands business is “a point of frustration for the entire organization … it’s clearly not where we want it to be or expect it to be.”
ConAgra’s private brands sales during the quarter ended Nov. 23, totaled $1.05 billion, a decline of approximately 5% compared with the same period during the previous year.
“Regarding the rest of this fiscal year, we had originally expected modest profit growth in fiscal 2015, but after further evaluation, we’ve revised our outlook,” Rodkin said. “This outlook better reflects the continuing competitive pressures, the impact of the commodity cost increases, the extended time needed to achieve the cost benefits from our network optimization, and in general, the overall timeline we needed to make sustainable improvements in how we operate this segment.”
He expects the business should turn around by 2016 and outlined a four-point plan to make the business more competitive.
• Narrow the business focus of the poorly performing unit.
• Increase the speed of commercialization, bringing products to market.
• Improve customer service and execution.
• Better leverage of rising commodity costs.
“To state the obvious, it’s been more difficult and taken longer than we originally planned, but an important point is, these issues, they are fixable,” Rodkin said.
ConAgra is a major supplier to Wal-Mart Stores with a large sales office in Bentonville.